What is the expected value of return on stocks? This is (.3)(-10)+(.7)(10)=4
What is the expected value of return on bonds? This is (.4)(0)+(.6)(5)=3
What is the variance of returns on stocks?
What is the variance of returns on bonds?
What is the covariance of returns on stocks and bonds?

I'm not exactly sure how to proceed with calculating variance. I think I'm just misapplying the formula for this seemingly easy problem but my answers just aren't matching up. Can someone help?

Oct 22nd 2008, 12:05 AM

mr fantastic

Quote:

Originally Posted by ashinynicklel

The following table gives the joint probability function of return on stocks (X) and returns on bonds (Y).

What is the expected value of return on stocks? This is (.3)(-10)+(.7)(10)=4
What is the expected value of return on bonds? This is (.4)(0)+(.6)(5)=3
What is the variance of returns on stocks?
What is the variance of returns on bonds?
What is the covariance of returns on stocks and bonds?

I'm not exactly sure how to proceed with calculating variance. I think I'm just misapplying the formula for this seemingly easy problem but my answers just aren't matching up. Can someone help?